Workers with Chumley’s General Contractors lay and weld pipe near Mile 166 Sterling Highway several miles north of Diamond Ridge Road during construction of the Anchor Point-Homer natural gas trunk line in April 2013, near Homer, Alaska. (Homer News file photo)

Tariff dispute with Enstar over gas line extension resolved

Editor’s note: This article has been updated to correct two typos and to add clarifying details about how the Enstar Natural Gas line extension was set up to be paid for in 2012, and about what Enstar requested in its February tariff filing to the RCA.

Homer area natural gas consumers will be paying a $1 per thousand cubic feet tariff until about 2032 for an ENSTAR Natural Gas line extension, now that the Regulatory Commission of Alaska has ruled on an agreement between the company and a group of municipalities affected by the tariff.

The City of Homer announced on Monday that the RCA issued its ruling on Friday, Aug. 23. In that order, the RCA agreed to accept a settlement that Homer, Kachemak City and the Kenai Peninsula Borough reached with Enstar Natural Gas. Back when a trunk line bringing natural gas to the Homer area was being pitched, the city of Homer agreed to pay for a portion of the cost to put that line in. The total project was projected to cost $10.6 million and a state grant was to pay for $8.15 million.

In 2012, that portion left over to be paid and later recouped by Enstar through its “Homer Extension Surcharge” was estimated at $2.5 million, according to a 2012 letter to former Gov. Sean Parnell by then Enstar President M. Colleen Starring. She wrote that the $1 per mcf tariff would pay off the balance of $2.5 million over 10 years.

The Homer City Council passed a resolution in 2012 stating that the construction costs exceeding the grant would be recovered by Enstar through the surcharge.

The increase in the overall amount of the line extension surcharge was due to the line extension project costing more than it was estimated to, and lower gas consumption on the part of Homer area customers. Enstar has also used an internal rate of return that Enstar says was always part of the surcharge but that the city of Homer contends it was not aware of at the time. Enstar’s original investment was essentially a loan with interest.

The settlement with Enstar ensures that natural gas customers will only have to pay the $1 per thousand cubic feet, or mcf, of gas they were already paying. The surcharge will sunset in 2032, or sooner, said City Manager Katie Koester during the Homer City Council’s Monday meeting.

“The ‘or sooner’ part is if gas consumptions and sales are higher than predicted,” she said.

Enstar’s February tariff filing with the RCA sought to “recover return and taxes” to the tune of $2.2 million that Enstar asserted it had not been recovering from October 2013 to December 2018, according to the court order accepting the stipulation, or agreement, between Enstar and the peninsula municipalities. It also sought to apply the surcharge to Homer area gas customers until the net actual costs had been recovered. According to the court order accepting the stipulation, this would have extended the surcharge payback period from an estimated 10 years to an estimated 30 years.

Castner described the RCA ruling as good news during the council meeting. He also talked a bit about the process.

“We had to get that settlement approved by the Regulatory Commission of Alaska,” he said. “And we went into a four-day hearing, where the commissioners heard our case and Enstar’s case on why they should accept the settlement. … All in all, the information that was provided by the assistant attorney general (for Alaska) and our … legal team and our consulting team, was enough to bring Enstar to the table and bring about a settlement that was fair to both sides.”

Castner praised the agreement, saying it brings a level of certainty to Homer area natural gas users in terms of how much the community will be paying back to Enstar. He also commented on the speed at which the process moved through the hoops of government and regulatory agencies.

“To me this is remarkable because we discovered the problem (in) late January, and in early August we have brought it to a conclusion,” Castner said. “And that’s really pretty lightning fast for the way I’ve been watching government operate in my role as mayor.”

Another aspect of the agreement reached with Enstar stipulates that the natural gas company must give regular reports to Homer, Kachemak City and the borough on the status of the tariff, according to the press release.

“This was really a major victory for the area,” Koester said at the council meeting. “Something I don’t think any of us were even thinking about until Mayor Castner did some digging in January. So I’m really pleased with the outcome.”